Validation of Direct Natural Gas
Validation of Direct Natural Gas
GTI-09/0007 FINAL REPORT Validation of Direct Natural Gas Use to Reduce CO2 Emissions Report Issued: June 26, 2009 Prepared by: Gas Technology Institute 1700 S. Mount Prospect Rd. Des Plaines, Illinois 60018 Subcontractor Science Applications International Corporation 8301 Greensboro Drive McLean, Virginia 22102 GTI Technical Contact: Neil Leslie, P.E. R&D Manager End Use Solutions 847-768-0926 Fax: 847-768-0501 email@example.com Prepared for: American Public Gas Association American Public Gas Association Research Foundation Interstate Natural Gas Association of America The INGAA Foundation, Inc.
National Fuel Gas Distribution Corporation National Grid Nicor Gas Piedmont Natural Gas Company Sempra Energy Utilities Southwest Gas Corporation
Validation of Direct Natural Gas Use to Reduce CO2 Emissions ii Disclaimer This report’s findings are general in nature, and readers are reminded to perform due diligence in applying these findings to their specific needs, as it is not possible for the authors or sponsors to have sufficient understanding of any specific situation to ensure applicability of the findings in all cases. The authors and the sponsors assume no liability for how readers may use, interpret, or apply the information, analysis, templates, and guidance herein or with respect to the use of, or damages resulting from the use of, any information, apparatus, method, or process contained herein.
In addition, the authors and the sponsors make no warranty or representation that the use of these contents does not infringe on privately held rights.
Validation of Direct Natural Gas Use to Reduce CO2 Emissions iii TABLE OF CONTENTS 1.0 EXECUTIVE SUMMARY . . 1 2.0 BACKGROUND . . 3 2.1 Energy and Emissions Trends . . 3 2.2 Why is Full Fuel Cycle Analysis Needed . . 4 3.0 PROJECT OVERVIEW . . 6 3.1 Objectives . . 6 3.2 Scope of Work . . 6 3.3 Approach . . 6 3.3.1 Project Team and Modeling Approach . . 6 3.3.2 Scenario Descriptions . . 7 4.0 RESULTS AND DISCUSSION . . 10 4.1 Impact on Building Energy Consumption . . 10 4.2 Impact on National Energy Consumption . . 11 4.3 Impact on CO2 Emissions . . 12 4.4 Cumulative Consumer Savings . . 13 4.5 Cost per Tonne of CO2 Emission Reduction .
. 14 4.6 Impact on Natural Gas Production . . 19 4.7 Impact on Natural Gas Prices . . 20 4.8 Impact on Electric Generation . . 22 5.0 CONCLUSIONS AND RECOMMENDATIONS . . 23 APPENDIX A . . 24 A.1 Metrics for Energy Use and Emissions . . 24 A.2 Project Description . . 27 A.3 Detailed Scenario Descriptions . . 29 A.3.1 PR1: 40% Natural Gas Equipment Subsidy . . 29 A.3.2 PR2: Natural Gas Education . . 30 A.3.3 PR3: Increased Natural Gas R&D . . 31 A.3.4 AE50: 50% Electric Equipment Subsidy . . 31 A.4 Cost of Retrofit for Gas Appliances and Insulation . . 32 A.5 Summary of Prior Study Results .
. 33 A.6 Model Results . . 34 A.6.1 Shipments . . 34 A.6.2 Installed Stock . . 38 A.6.3 Market Share . . 40 A.6.4 Energy Demand . . 44 A.6.5 Total Energy Expenditure . . 47 A.6.6 Generation Impacts . . 49 A.6.7 Power Generation . . 52 A.6.8 Total Energy Production . . 53 A.6.9 Energy Prices . . 55 A.6.10 Residential Natural Gas Consumption . . 57 A.6.11 Commercial Natural Gas Consumption . . 59 A.6.12 Scenario Impact by Census Region . . 61 A.6.13 Electric Space Heating by Region- Stock and Efficiency . . 66
Validation of Direct Natural Gas Use to Reduce CO2 Emissions iv LIST OF FIGURES Figure 1 Gas and Electric CO2 Emission Trends in Residential and Commercial Buildings . . 3 Figure 2 Energy Use Trends 1950 – 2007 in Residential and Commercial Buildings . . 4 Figure 3 NEMS Model . . 7 Figure 4 Residential and Commercial Consumption - PR3 Change from Reference Case . . 10 Figure 5 Residential Gas Use per Customer – Gas Subsidy Scenarios Change from Reference Case . . 10 Figure 6 Total Delivered Energy: All Sectors . . 11 Figure 7 CO2 Emissions for all Scenarios . . 12 Figure 8 Residential and Commercial Energy Expenditures Change from Reference Case .
. 13 Figure 9 Energy Expenditures Change from Reference . . 14 Figure 10 CO2 Emission Reduction Relative to the Reference Case . . 15 Figure 11 Cost per Tonne of CO2 Reduction . . 16 Figure 12 Dry Natural Gas Production . . 19 Figure 13 Residential Natural Gas Prices . . 20 Figure 14 Commercial Natural Gas Prices . . 21 Figure 15 Generation Capacity Impacts . . 22 Figure A-1 Primary Energy Consumption . . 25 Figure A-2 Natural Gas Space Heating Shipments … . 35 Figure A-3 Electric Radiant Space Heating Shipments . . 35 Figure A-4 Natural Gas Heat Pump Shipments . . 36 Figure A-5 Electric Heat Pump Space Heating Shipments … .
36 Figure A-6 Natural Gas Water Heater Shipments . . 37 Figure A-7 Electric Water Heater Shipments . 37 Figure A-8 Natural Gas Furnaces Stock . 38 Figure A-9 Electric Resistance Space Heating Stock . 39 Figure A-10 Electric Heat Pump Stock . 39 Figure A-11 Market Share of Natural Gas Space Heating . 41 Figure A-12 Market Share of Electric Space Heating … 41 Figure A-13 Market Share of Electric Resistance Space Heating . 42 Figure A-14 Market Share of Electric Heat Pump Space Heating . 42 Figure A-15 Market Share of Natural Gas Water Heaters . . 43 Figure A-16 Market Share of Electric Water Heaters … .
43 Figure A-17 Total Energy Demand: Electricity vs. Natural Gas . . 44 Figure A-18 Residential Natural Gas Demand . 45 Figure A-19 Residential Purchased Electricity Demand … 45 Figure A-20 Commercial Natural Gas Demand . 46 Figure A-21 Commercial Purchased Electricity Demand . . 46 Figure A-22 Residential Total Energy Expenditure … … 48 Figure A-23 Commercial Total Energy Expenditure . . 48 Figure A-24 Generation Impacts: PR1 . . 50 Figure A-25 Generation Impacts: PR2 . . 50 Figure A-26 Generation Impacts: PR3 . . 51 Figure A-27 Generation Impacts: AE50 … 51 Figure A-28 Electricity Generation … .
52 Figure A-29 Generating Capacity . . 52 Figure A-30 Total Energy Production … 53 Figure A-31 Dry Natural Gas Production . . 53 Figure A-32 Coal Production . . 54 Figure A-33 Biomass Production … … 54
Validation of Direct Natural Gas Use to Reduce CO2 Emissions v Figure A-34 Residential Natural Gas Prices . . 55 Figure A-35 Residential Electricity Prices . 56 Figure A-36 Commercial Natural Gas Prices . 56 Figure A-37 Commercial Electricity Prices … … 57 Figure A-38 Residential Natural Gas Consumption 2030 . 58 Figure A-39 Residential Natural Gas Consumption 2030 - Change from Reference Case … … 58 Figure A-40 Commercial Natural Gas Consumption 2030 … 60 Figure A-41 Commercial Natural Gas Consumption 2030 - Change from Reference Case . 60 Figure A-42 Natural Gas Demand 2030 - New England … … 61 Figure A-43 Natural Gas Demand 2030 - Mid Atlantic .
62 Figure A-44 Natural Gas Demand 2030 – E. North Central . 62 Figure A-45 Natural Gas Demand 2030 - W North Central . . 63 Figure A-46 Natural Gas Demand 2030 - S Atlantic . 63 Figure A-47 Natural Gas Demand 2030 - E South Central … 64 Figure A-48 Natural Gas Demand 2030 - W South Central . . 64 Figure A-49 Natural Gas Demand 2030 – Mountain . 65 Figure A-50 Natural Gas Demand 2030 – Pacific . 65 Figure A-51 Electric Resistance Furnace Stock 2005 by Census Division … 66 Figure A-52 Electric Resistance Furnace Average Yearly Electricity Use 2005 by Census Division….. 66 Figure A-53 Electric Heat Pump Stock 2005 by Census Division .
67 Figure A-54 Electric Heat Pump Average Yearly Electricity Use 2005 by Census Division……………67 LIST OF TABLES Table 1 NEMS-DGU Model Scenario Descriptions . . 8 Table 2 Power Plant Capital Cost Savings from Reduction in GW . . 17 Table 3 Water Heater Fuel Switching and Thermal Envelope Upgrade Options for New Homes . . 18 Table A-1 Cost of Gas Retrofits . 33
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 1 1.0 Executive Summary This study analyzes the benefits of increased “direct use” of natural gas as a cost-effective mechanism to assist the nation in achieving two key goals: (1) increase the nation’s full fuel cycle energy efficiency; and (2) reduce national greenhouse gas (GHG) emissions. Objectives of this study were to: • Assess end use efficiency, national CO2 emission reductions, primary energy savings, and consumer cost savings through encouraging direct use of natural gas to displace less efficient practices by creating economic incentives for equipment and educating consumers to gain immediate benefits, and providing new technologies through R&D investments for sustainable long term benefits.
• Compare the merits of increased direct gas use relative to other options to meet national energy efficiency and CO2 emission reduction goals. In particular, compare the relative merits of providing a comparable level of subsidies to direct use of natural gas for space and water heating versus electric end-use resistance heating and water heating technologies. The analysis used the National Energy Modeling System (NEMS), the model used by the Energy Information Administration (EIA) to provide national energy forecasts in the Annual Energy Outlook (AEO) and to analyze energy and environmental legislation upon request by Congress.
The term “NEMS-DGU” (Direct Gas Use) is used in this report to distinguish use of the model in this project from uses by EIA. The NEMS-DGU analysis included three complementary and additive scenarios (PR1, PR2, and PR3) that encouraged direct use of natural gas as a part of a national energy and CO2 emission reduction strategy, and a fourth scenario (AE50) that investigated the impact of an aggressive (50%) subsidy of electric end use technologies. The NEMS-DGU model calculated energy, cost, and CO2 emission changes from 2010 through 2030 under these scenarios compared to the EIA AEO 2008 Reference Case.
Conclusions from this study include: • The increased direct use of natural gas will reduce primary energy consumption, consumer energy costs, and national CO2 emissions compared to the AEO2008 Reference Case (“business-as- usual”) • Subsidies provided to increase the direct use of natural gas will provide greater benefits than comparable subsidies to electric end-use technologies with respect to reducing primary energy consumption, consumer energy costs and national CO2 emissions.
• Subsidies provided to increase the direct use of natural gas, together with increased efforts in consumer education and R&D funding, in comparison to the AEO2008 Reference Case, will provide the following benefits by 2030: o 1.9 Quads energy savings per year o 96 million metric tons CO2 emission reduction per year o $213 billion cumulative consumer savings o 200,000 GWh electricity savings per year o 50 GW cumulative power generation capacity additions avoided, with avoided capital expenditures of $110 billion at $2,200/kW.
• By 2030, the benefits derived from subsidies to increase the direct use of natural gas significantly exceed those with respect to comparable subsidies to electric end-use technologies
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 2 in four out of the five categories above (all except for cumulative consumer savings, due to the assumption of the conversion from oil and distillate fuel to electricity in that scenario). • The natural gas subsidy scenario PR3 shows a 3.7% increase in residential gas prices and little increase in commercial gas prices compared to the Reference Case by 2030.
Natural gas prices fall in the electric subsidy scenario while electric prices are unchanged compared to the Reference Case.
• A direct natural gas use subsidy has significantly lower gross cost to reduce a metric ton (tonne) of CO2 than an electric end use equipment subsidy or a building insulation retrofit subsidy. Avoided cost of new power plant construction as well as consumer savings from efficient natural gas direct use can result in a substantial net societal savings from direct gas use, especially in new construction markets. • Retrofit markets pose unique challenges for direct gas use CO2 emission or primary energy reduction strategies. The high installed cost of retrofit of gas technologies (especially for electric homes and multifamily dwellings) compared to new construction as well as variability of retrofit costs complicates economics and incentive strategies.
It will be critical to focus on the most attractive regions and market segments to minimize the net cost per tonne in retrofit markets. • The natural gas end use equipment subsidy will increase the amount of natural gas used in the commercial and residential end use market, but it will result in reduced fossil fuel production and a net reduction in CO2 emissions. This is because of the better full cycle efficiency of natural gas end use equipment coupled with the resultant power generation fuel mix. • While the three natural gas end use equipment subsidy scenarios will result in a moderate increase in natural gas consumption reporting by Local Distribution Companies (LDCs), the per capita consumption declines.
The reduction in natural gas usage per residential customer ranges from 3 to 12% by 2020.
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 3 2.0 Background 2.1 Energy and Emissions Trends Buildings consume nearly 40 percent of the primary energy resources and 74 percent of the electricity generated each year in the United States1 . Homes and commercial businesses have been growing contributors to CO2 emissions for the last 15 years – a trend that is projected to continue for the next two decades. As shown in Figure 1and Figure 2, the increasing CO2 emissions from residential and commercial buildings are being driven by growing consumption of electricity, including generation losses.
Much of the increased CO2 emissions from residential and commercial electricity use comes from power plants and the relatively inefficient “full fuel cycle” of extraction, processing, transportation, production, and delivery of electricity to the buildings. In contrast, CO2 emissions per residential natural gas customer have fallen by 40% since 1970, and total CO2 emissions have been flat in spite of an increase from 38 million customers in 1970 to 65 million customers in 2007. Aggregate CO2 emissions from natural gas consumption in U.S. buildings are currently at 1990 levels. Due to continued efficiency improvements, they are projected to remain nearly flat through 2030 despite continuing growth in the number of gas customers.
500 1000 1500 2000 2500 3000 1990 1995 2000 2005 2010 2015 2020 2025 2030 Million Metric Tons CO 2 Residential and Commercial CO2 Emission Trends Natural Gas Electricity Source: www.eia.doe.gov/oiaf/1605/ggrpt/excel/historical_co2.xls; EIA Annual Energy Outlook 2009 Figure 1 Gas and Electric CO2 Emission Trends in Residential and Commercial Buildings 1 DOE. 2008. Annual Energy Review 2007, (DOE/EIA-0384(2007)). Washington, D.C. Energy Information Administration, U.S. Department of Energy.
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 4 (1) Energy lostduring generation,transmission,and distribution ofelectricity Residential & Commercial Energy Use Figure 2 Energy Use Trends 1950 – 2007 in Residential and Commercial Buildings2 2.2 Why is Full Fuel Cycle Analysis Needed? Traditionally, residential and commercial energy use discussions have been focused on end use equipment efficiency.
With the advent of the discussions of Global Climate Change and more sophisticated modeling that identifies full cycle energy use, there has been an awareness that the simple end use efficiency metric that has been in place for over 30 years is insufficient as a tool to measure and predict outcomes that society is facing. It is important to define and differentiate alternative metrics that describe energy use and emissions.
The terminology for energy efficiency and emissions metrics used in this report reflect the language used in current legislative initiatives and industry analysis. Those terms are summarized below and presented in more detail in Appendix A.1. • CO2 emission reduction is used to describe the reduction of airborne CO2 produced. It differs from the term carbon output, which includes any other direct emissions of greenhouse gases during normal use such as CH4, HFC’s, PFC’s, and SF6. CO2 represents approximately 85% of total greenhouse gas emissions.
• Full fuel cycle (or source) energy efficiency accounts for the cumulative impact of extraction, processing, transportation, generation, transmission, and distribution losses on overall energy usage.
Unlike site energy efficiency, full fuel cycle is useful for hybrid and multi-fuel consumption calculations. Full fuel cycle means that for every Btu of primary energy usage in the coal mine, only 26%-38% of the energy value gets delivered to the customer. In contrast for every Btu of natural gas in the well, 91% of the energy value gets delivered to the customer. Full fuel cycle energy efficiency shows the impact of a scenario on the nations primary energy consumption. Primary energy consumption is defined by the EIA as the total consumption of petroleum, cola, natural gas, biomass, hydro, and nuclear power.
Source energy efficiency is considered the same as full fuel cycle energy efficiency since both metrics consider extraction, processing, and transportation energy requirements. These metrics show that the direct use of 2 DOE. 2008. Annual Energy Review 2007, (DOE/EIA-0384(2007)). Washington, D.C. Energy Information Administration, U.S. Department of Energy.
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 5 natural gas by residential, commercial, and industrial users is far more energy efficient than the traditional use of coal or natural gas to produce electricity, which then must be delivered for use by homes, businesses, and industries. Full fuel cycle efficiency metrics do have the drawback that they are difficult to measure in the laboratory and are thus difficult to standardize. • Site energy efficiency metrics, such as AFUE3 , are useful for comparing equipment of the same fuel type in an efficiency rating system. These metrics, however, give incomplete information by omitting energy needed to produce and transport the appliance energy to the site.
They do not allow direct comparison of appliances using different fuels (e.g., gas versus electric water heaters). Appliance efficiency and end-use efficiency metrics are also commonly used and have the same drawbacks.
• Energy cost or site energy cost is based on site energy consumption by fuel type as well as peak energy demand for electricity in many buildings. Energy cost is sometimes used as a proxy for energy efficiency in hybrid and multi-fuel appliance consumption calculations. • Energy security is a term in common use that describes the national security derived from domestic production of energy with domestic fuel sources such as coal and natural gas to the exclusion of imported fuels from U.S. trading partners. Energy security considerations drive decision-making outside the realm of economics and infrastructure issues and into the political arena.
For this analysis, energy security impacts were not considered. 3 Annual Fuel Utilization Efficiency
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 6 3.0 Project Overview 3.1 Objectives This study analyzes the benefits of increased “direct use” of natural gas as a cost-effective mechanism to assist the nation in achieving two key goals: (1) increase the nation’s full fuel cycle energy efficiency; and (2) reduce national greenhouse gas (GHG) emissions. Objectives of this study were to: • Assess end use efficiency, national CO2 emission reductions, primary energy savings, and consumer cost savings through encouraging direct use of natural gas to displace less efficient practices by creating economic incentives for equipment and educating consumers to gain immediate benefits, and providing new technologies through R&D investments for sustainable long term benefits.
• Compare the merits of increased direct gas use relative to other options to meet national energy efficiency and CO2 emission reduction goals. In particular, compare the relative merits of providing a comparable level of subsidies to direct use of natural gas for space and water heating versus electric end-use resistance heating and water heating technologies. 3.2 Scope of Work The scope of this project was to use the NEMS-DGU model to determine the impact of three investment options that support the direct use of natural gas to reduce production of CO2 chiefly produced by electric power generation and consumption.
The project provides the core modeling and other analyses needed to provide a firm analytical underpinning for the benefits of increased direct use of natural gas described above, and form the basis for use of the information for educational purposes intended to provide scientific data for the development of local, state, or U.S. climate change policy and associated incentives. This analysis can also expand the base of support for this proposition to others beyond the natural gas industry.
3.3 Approach 3.3.1 Project Team and Modeling Approach GTI teamed with Science Applications International Corporation (SAIC) for this project. SAIC executed all NEMS-DGU model runs, performed analysis of results, and contributed key input to meetings and reports.4 GTI provided input on scenarios, modeling assumptions, and analysis, prepared presentations and reports, and provided overall program management. The steering team provided guidance on program needs, external stakeholder involvement, and publication. Figure 3 shows the NEMS model. NEMS is a national, economy-wide, integrated energy model that analyzes energy supply, conversion, and demand.
EIA uses NEMS to provide U.S. energy market forecasts through 2030 in the EIA Annual Energy Outlook. The residential and commercial modules 4 SAIC is a FORTUNE 500® scientific, engineering and technology applications company that uses its deep domain knowledge to solve problems of vital importance to the nation and the world, in national security, energy and the environment, critical infrastructure, and health.
SAIC is a policy-neutral organization. SAIC executed the NEMS model in this project using input assumptions provided by the project sponsor organizations and companies. Analysis provided in this report is based on the output from the NEMS model as a result of the project sponsors’ input assumptions. The input assumptions, opinions and recommendations in this report are those of the project sponsors, and do not necessarily represent the views of SAIC.
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 7 were the focus of this study and inputs were modified as necessary to meet the objectives of each scenario.
The other 10 modules used Reference Case values for all scenarios. Impact to the environment, consumers, and the natural gas industry was considered and is provided in the tables below and in Appendix A.5 of this report. 3.3.2 Scenario Descriptions The project base case is the AEO2008 Reference Case with modifications to the residential and commercial data input files depending on the scenario to be examined. Table 1 shows the three scenarios that subsidize natural gas direct use and an alternate scenario that subsidizes electric equipment. Each scenario builds on the prior scenario, encompassing the assumptions of its predecessor.
The following discussion provides more details on each scenario.
Figure 3 NEMS Model
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 8 Table 1 NEMS-DGU Model Scenario Descriptions Scenario Description PR1 40% Natural Gas Subsidy PR2 Natural Gas Education PR3 Natural Gas R&D AE50 50% Electric Equipment Subsidy PR1: 40% Natural Gas Subsidy This scenario encourages the acquisition and use of natural gas appliances and discourages purchase of their electric counterparts. The methodology specifically imposed in the modeling was to: • Reduce capital costs of the most-efficient NG appliances & equipment by 40% through a societal subsidy such as a rebate or tax credit; • Eliminate incremental costs of fuel switching (e.g.
the cost of connecting to natural gas); and, • Impose an economic disincentive as a reflection of a policy decision to discourage the use of electric resistance space & water heating systems.
PR2: Natural Gas Education This scenario, which includes the changes made in PR1, attempts to reflect the impact of education and promotion programs intended to improve the perception of natural gas. This is more difficult to quantify than the changes made in the other scenarios in that there is no cost/impact lever in NEMS that would motivate such a change. However, there are behavioral parameters in the model that can be changed to reflect behavior modification efforts. Accordingly, changes to the behavioral input files are made with the understanding that consumer response may be both unpredictable and transitory.
• Increases percentage of new and existing residential and commercial facilities capable of using or switching to NG • Modifies bias parameters related to users’ favorable perception of natural gas PR3: Natural Gas R&D This scenario, which includes scenarios PR1 and PR2, adds the estimated impact of future cost reduction and increased efficiency through R&D on natural gas heat pumps and combined heat and power (CHP) systems. Increased R&D reduces the cost and increases the efficiency of the specified systems. • Reduced cost, increased efficiencies and tax incentives for CHP systems (commercial users only) • Reduced cost and increased efficiencies for natural gas heat pumps AE50: 50% Electric Equipment Subsidy For the purpose of comparison, this study also included a scenario with the aggressive promotion of electricity at the expense of other fuels, particularly natural gas.
This scenario was designed to mirror for electricity, to the extent possible, the conditions in the PR1 and PR2 natural gas scenarios. • Reduces capital cost of electric appliances and equipment by 50%
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 9 • Encourages electricity in the fuel-choice decision for all appliances • Other electric incentives that mirror PR1 and PR2 natural gas incentives
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 10 4.0 Results and Discussion Key findings by topic area are provided below. More detailed charts and comparisons are provided in Appendix A. 4.1 Impact on Building Energy Consumption Figure 4 shows that direct use causes an increase in natural gas residential and commercial consumption.
The impact on the residential sector is triple the impact on the commercial sector because residential has greater flexibility in fuel choice. Reduction in electric consumption is less as a percentage because of the higher baseline usage. While the three natural gas end use equipment subsidy scenarios will result in increased natural gas consumption reporting by LDCs, the per capita natural gas usage will go down. Figure 5 shows that the per capita reduction from residential customers ranges from 3 to 12% by 2020 for the gas subsidy scenarios.
-15% -10% -5% 0% 5% 10% 15% 20% 2005 2010 2015 2020 2025 2030 Residential and Commercial Natural Gas and Electricity Consumption PR3 Scenario: % Change from Reference Case NG: Residential NG: Commercial Electricity: Residential Electricity: Commercial Figure 4 Residential and Commercial Consumption - PR3 Change from Reference Case Figure 5 Residential Gas Use per Customer – Gas Subsidy Scenarios Change from Reference Case
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 11 4.2 Impact on National Energy Consumption Figure 6 shows that expanded direct gas use decreases total primary energy demand by up to 1.9 Quadrillion Btu’s by 2030 due to reduction in electricity consumption with lower full fuel cycle efficiency.
All natural gas scenarios decrease demand more than the electric subsidy scenario, AE50, due to the differences in full fuel cycle efficiency between gas and electric resistance space heating and water heating.
Figure 6 Total Delivered Energy: All Sectors
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 12 4.3 Impact on CO2 Emissions Figure 7 shows a key result of this study: National CO2 emissions are reduced significantly by implementing a strategy of rational fuel switching to natural gas end use in buildings. The net CO2 emission reduction is due to lower electricity consumption in the buildings sector and associated full fuel cycle emission reductions. Emissions are reduced for each of the three scenarios in this model, with the largest reduction provided by PR3 – the cumulative effect of gas incentives, consumer education, and R&D investments.
The aggregate effect of the incentives is a reduction of 96 million metric tons (MMT) of CO2 per year in 2030, which represents a 3.3% emission reduction from the buildings sector. The net annual benefit of the incentives grows with time, from 53 MMT per year in 2015 to 96 MMT in 2030, as national demand for energy increases.
5,800 6,000 6,200 6,400 6,600 6,800 7,000 2005 2010 2015 2020 2025 2030 CO2 Emissions (MMT Equivalent) Reference PR1 PR2 PR3 AE50 Figure 7 CO2 Emissions for all Scenarios
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 13 4.4 Cumulative Consumer Savings Figure 8 and Figure 9 show cumulative consumer savings compared to the Reference Case through 2030. Direct natural gas use provides residential and commercial consumers $120 - $150 billion cumulative savings, $30 - $60 billion more savings than the electric subsidy scenario, while total national energy expenditures show a more significant reduction for all scenarios, with the electric subsidy scenario having more national energy savings than the natural gas subsidy scenarios due to the conversion of 78% of the “Distillate Fuel Oil and LP Gases” consumption to electricity in the residential sector in this scenario.
Figure 8 Residential and Commercial Energy Expenditures Change from Reference Case
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 14 Figure 9 Energy Expenditures Change from Reference 4.5 Cost per Tonne of CO2 Emission Reduction Figure 10 shows the CO2 emission reductions for each scenario relative to the Reference Case. As expected, the greatest incremental impact of the three natural gas subsidy scenarios is produced by Scenario PR1 (incentives). In 2030, more than 50% of the net benefit is provided by that scenario – a reduction of approximately 50 MMT per year.
Scenario PR2 (incentives and education) provides the rest of the net benefit until 2025 when the incremental impact of education is reduced and Scenario PR3 (incentives, education, and advanced technology due to R&D) has a higher net benefit. The impact of the three scenarios grows steadily until 2025 and then stays slightly below 100 MMT per year through 2030. Scenario AE50, the electric incentives and education equivalent to PR2, provides initial CO2 emission reduction as less efficient electric appliances are replaced with more efficient electric technologies, but the net benefit is reduced to near zero in 2030 for reasons that cannot be explained by the aggregate value provided by the NEMS model.
Possible factors include fuel mix changes for electricity generation, or replacement of oil and LP equipment by electric equipment. Policies that include natural gas incentives and education are much more effective in providing sustainable CO2 emissions reductions than similar electric incentives and education – a difference of approximately 65 MMT per year in 2030.
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 15 20 40 60 80 100 120 2010 2015 2020 2025 2030 MMT CO2 Equivalent CO2 Emissions Reductions from Reference Case PR1 PR2 PR3 AE50 Figure 10 CO2 Emission Reduction Relative to the Reference Case
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 16 Figure 11 compares the gross subsidy cost per tonne of CO2 emission reduction over time of the three gas subsidy scenarios and the electric subsidy scenario. The gross cost per tonne of the electric subsidy scenario for the five years ending in 2030 is more than an order of magnitude higher than the cost of any of the three gas subsidy scenarios.
Figure 11 also shows that the gross gas subsidy cost per tonne of CO2 emission reduction declines over time as the impact of behavior, incentives, and technology development spreads in the marketplace. The gross cost per tonne of the AE50 scenario falls for a period of time as efficient electric technology market penetration increases, but rises as the generation fuel mix changes and market saturation reduces the incremental reduction opportunities. These costs do not represent the total societal cost or savings of the scenarios, but do provide a relative indicator of which options are likely to be more cost-effective when other societal savings, such as avoided power plant construction, are included in the analysis.
Figure 11 Cost per Tonne of CO2 Reduction
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 17 Societal benefits of direct gas use in scenario PR3 include eliminated or deferred cost of electricity generation that would have been needed otherwise. As summarized in Table 2, approximately 50 GW of electric power generation is eliminated in scenario PR3, for a total cumulative capital cost savings of $111 billion (an average cost of $2,200/kW). The 1,496 MMT cumulative CO2 emission reduction compared to the Reference Case results in a societal savings of approximately $74/tonne of CO2.
This societal savings offsets the gross societal cost of the subsidy to obtain the benefits of direct gas use. Cumulative consumer energy cost savings through 2030 associated with the PR3 scenario are $213 billion. This represents an additional societal savings of $142/tonne of CO2. Inclusion of these societal savings more than offsets the gross cumulative subsidy cost per tonne of the PR3 scenario, creating a significant net societal benefit.
Table 2 Power Plant Capital Cost Savings from Reduction in GW Power Plant Description Fuel Source Cumulative Reduction in GW Built (2030) Capital Cost ($/kW) Total Capital Costs Avoided ($ M) Cumulative CO2 Reduced, PR3 Case (MMT) $/Tonne CO2 Savings Steam Turbine Coal 11.0 700 7,700 Steam Turbine Natural Gas 6.5 500 3,250 Combined Cycle Turbines Natural Gas 2.7 650 1,755 Combustion Turbines Diesel 10.9 1,500 16,350 Nuclear Power Plants Nuclear 11.0 3,500 38,500 Renewables Central Station Renewables 3.5 10,000 35,000 Distributed Generation Natural gas 4.3 2,000 8,600 Totals 49.9 N/A 111,155 1,496 74
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 18 Another option available in the residential market to reduce CO2 emissions is improved performance of the thermal envelope. The NEMS-DGU model was not suitable for evaluating installed costs for this option. An alternative simulation analysis was conducted using GTI’s Residential Energy Efficiency Wizard, an hourly simulation tool that evaluates the installed cost and energy savings of energy efficiency improvement options. The analysis compared installed cost and energy savings for envelope improvements and substituting gas for electric water heater in representative cities in each of the nine U.S.
census regions. The incremental cost of envelope upgrades in new construction was compared to the incremental cost of installing a gas water heater rather than an electric water heater to determine which option is likely to be more cost-effective.
Table 3 provides a snapshot of the cost per tonne of CO2 emission reduction for a water heater upgrade from electric to natural gas and an insulation upgrade for the attic and wall in a major city in each census region. On a national average basis, the incremental cost of a gas water heater over electric water heating as an upgrade in new construction produces a gross cost per tonne of CO2 emission reduction of $84. Upgrading insulation as a new construction choice produces a gross cost per tonne of CO2 emission reduction over $1,200 on a national average basis. This suggests that rational fuel switching to natural gas water heating in new construction would likely be an order of magnitude more cost-effective than an envelope upgrade as a national CO2 emission reduction strategy.
For a retrofit of gas appliances or insulation into an existing building there are many possible scenarios to be considered that likely would increase installed cost significantly. Appendix A.3 provides further information on the retrofit costs of gas furnaces and water heaters as well as insulation. This analysis shows the importance of making good decisions on fuel choice and level of insulation when the home is first built. Table 3 Water Heater Fuel Switching and Thermal Envelope Upgrade Options for New Homes City Census Region Water Heater Upgrade Cost/Tonne of CO2 Reduced ($) Thermal Envelope Upgrade Cost/Tonne of CO2 Reduced ($) Boston New England 57 1,124 New York Mid Atlantic 98 1,256 Indianapolis E.
N. Central 29 1,061 Omaha W. N. Central 38 987 Atlanta S. Atlantic 46 1,610 Nashville E. S. Central 51 1,354 Dallas W. S. Central 48 1,642 Denver Mountain 32 1,132 Seattle Pacific ‐ 1,304
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 19 4.6 Impact on Natural Gas Production Figure 12 shows the impact of each scenario on natural gas production compared to the Reference Case. When direct use of natural gas is encouraged through subsidies, natural gas production increases by up to 0.2 Quadrillion Btu’s. This is a relatively small change of about 1% in total natural gas production. The electric subsidy scenario, however, reduces natural gas production 1.1 Quadrillion Btu’s, about 5% of total natural gas production.
Dry Natural Gas Production Change from Reference Case -1,200 -1,000 -800 -600 -400 -200 200 400 600 2005 2010 2015 2020 2025 2030 Trill Btu's PR1 PR2 PR3 AE50 Figure 12 Dry Natural Gas Production
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 20 4.7 Impact on Natural Gas Prices Figure 13 and Figure 14 show the impact of each scenario on natural gas prices. Residential customers will see a slight price increase of 3.7% for the PR3 scenario relative to the Reference Case by 2030 as a result of increased gas demand, while commercial customers will see essentially no price increase. 10.5 11.0 11.5 12.0 12.5 13.0 13.5 2010 2015 2020 2025 2030 2006$ / MMBtu Residential Natural Gas Prices Reference PR1 PR2 PR3 AE50 Figure 13 Residential Natural Gas Prices
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 21 9.0 9.5 10.0 10.5 11.0 11.5 12.0 2010 2015 2020 2025 2030 2006$ / MMBtu Commercial Natural Gas Prices Reference PR1 PR2 PR3 AE50 Figure 14 Commercial Natural Gas Prices
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 22 4.8 Impact on Electric Generation Figure 15 shows generating capacity impacts from the Reference Case for all 4 scenarios in 2030. PR1 through PR3 show reductions across all fuels whereas AE50 shows increases in required generation capacity for all fuels with the combustion turbine/diesel category increasing most – all of which is due to increased gas turbine generation. For generation impacts across generating sources for each scenario, see Appendix A.5.6.
Figure 15 Generation Capacity Impacts
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 23 5.0 Conclusions and Recommendations The NEMS-DGU analysis supports prior CO2 emission reduction study results showing the benefit of policies that encourage efficient direct natural gas use in certain residential and commercial market applications.
Strategies are ready for immediate implementation, and have low or negative net societal cost per tonne. As the cornerstone principle of any U.S. policy to reduce CO2 emissions, the country should first ensure that it uses its existing energy sources in the most efficient way possible. Optimizing the use of the nation’s current energy sources will increase energy efficiency by converting 26-38% full fuel cycle efficiency for converting coal in the mine to electricity vs. 91% full fuel cycle efficiency for natural gas from the wellhead to the appliance. Optimizing the use of the nation’s current energy sources will also reduce primary energy demand by up to 1.9 Quadrillion Btu’s by 2030, avoid the need for over 40 GW of electric generating capacity, and help to reduce the potential high cost of implementing legislation to reduce GHG emissions.
GHG legislative initiatives will need to include appropriate stakeholder incentives for overall emission reduction strategies that selectively reduce electricity consumption while increasing natural gas use. Further research is needed into cost-effective gas options with optimal CO2 reduction targeted to building performance improvements, combined heat and power at the micro or macro level, and appliance usage by market segment and region of the country. This information will provide further evidence of the benefits of gas options to reduce national CO2 emissions.
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 24 Appendix A A.1 Metrics for Energy Use and Emissions There are a number of alternative metrics to account for energy consumption, efficiency, and emissions related to building operation.
Examples include: • Site energy use (therms, kWh, gallons, Btu) • Full fuel cycle energy use (Btu) • Energy use index (kBtu/ft2 /Year) o Usually site energy based irrespective of fuel type o Sometimes includes partial or full fuel cycle energy Depending on the goal of the energy analysis, one or more of these metrics will be required. Irrespective on the analysis, site energy consumption will always be required. Alternative metrics include cost, emissions, and ecological factors such as: • Energy cost ($) • Energy price ratio ($/therm, $/kWh, $/gallon, $/Btu) • Energy cost index ($/ft2 /Year) • Greenhouse gas emissions (CO2, CH4, N2O, HFC’s, PFC’s, SF6, CO2e) • Total environmental impact (energy, water, materials, air quality, society, ecosystem) These metrics will always require supplemental information beyond site energy consumption and may be significantly more challenging to estimate.
Site energy and site energy use index are the only metrics that can be measured directly in a building. Other metrics are derived from site energy by considering other factors such as cost, upstream energy consumption, or emissions. The most significant issue with site energy is that not all energy forms are equivalent, making comparisons either difficult or impossible when considering more than one fuel in a building as well as the impact of purchased fuels on local, regional, or national energy consumption and efficiency. Oil, natural gas, propane, coal, and nuclear are the dominant primary energy sources in the U.S.
Electricity and hydrogen are energy carriers derived from primary energy sources. Hydropower is currently the dominant renewable source, but future renewable energy growth will come from wind, solar, and biomass. None of these different energy sources can be directly compared using only site energy. Site energy is a necessary but not sufficient metric for site and national energy inventories and efficiency improvements. Site energy-based efficiency metrics for multi-fuel appliances give incomplete energy information (e.g., AFUE). Site energy also does not allow direct energy comparisons of appliances consuming different fuels (e.g., gas versus electric water heaters) or multi-fuel appliances (e.g., powered combustion appliances, combined heat and power systems, hybrid renewables).
Additional information is needed for aggregation and rational comparisons within buildings, macro-analysis of energy inventory and efficiency initiatives, and consideration of externalities such as national CO2 emissions.
Full fuel cycle analysis enables a comprehensive analysis of total energy and environmental impact. Full fuel cycle energy efficiency shows the impact of a scenario on the nation’s primary energy
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 25 consumption. As shown in Figure A-11 , primary energy consumption is defined by the EIA as the total consumption of petroleum, cola, natural gas, biomass, hydro, and nuclear power. Full fuel cycle energy metrics are intended to account for the cumulative impact of extraction, processing, transportation, generation, transmission, and distribution losses on overall efficiency.
Unlike site energy, full fuel cycle energy is useful for hybrid and multi-fuel appliance consumption calculations. Conversion efficiency is often used as a proxy for full fuel cycle efficiency, but it is only part of the full fuel cycle efficiency, most useful for evaluating net generation efficiency at power plants. Cumulative full fuel cycle efficiency is most appropriate for determining local, regional and national impact of building energy consumption, since it addresses multi-fuel, hybrid, and combined heat and power (CHP) systems, and includes all losses from extraction through distribution to the building.
Figure A-1 Primary Energy Consumption Full fuel cycle energy metrics also have limitations and challenges. They cannot be measured directly, but must be derived from site energy. Primary energies are not easily compared. Fossil and biomass fuels have different CO2 emission factors, with coal having the highest emission factor and natural gas having the lowest emission factor. Nuclear, hydropower, solar, wind, and biomass each have different environmental impacts as well as resource availability. Also, source efficiencies may vary over time and location as technology improvements in power generation occur and as the relevant generation mix changes.
Full fuel cycle energy is a necessary but not sufficient metric for national greenhouse gas and total environmental impact assessments. It is required for whole building, regional, and national aggregations and comparisons. It is necessary as the basis of estimating national CO2 and other greenhouse gas emissions due to appliances and buildings. However, additional CO2 and environmental impact information is needed to complete those calculations to include the energy used for remediation. 1 EIA Annual Energy Review, 2007
Validation of Direct Natural Gas Use to Reduce CO2 Emissions Page 26 Energy cost is based on energy consumption by fuel type as well as peak energy demand for electricity in many buildings.
Cost is the bottom line consideration for consumers, and is the most easily understood metric. It is the basis of standards and certification requirements in certain minimum energy efficiency standards and green building programs. In these programs, life cycle cost impacts of options are evaluated only after appliance fuel type is chosen.
Site energy cost may be a useful proxy for energy in hybrid and multi-fuel appliance consumption calculations. It may also be useful for aggregations and comparisons of different energy source appliances, CHP, and multi-fuel appliances for whole buildings as well as regional and national evaluations, especially if life cycle cost (LCC) is used. However, price volatility makes LCC comparisons difficult. Subsidies can skew relative costs among fuels, and regulated utility price structures are often slow to change. These factors limit the usefulness of cost as a proxy for energy. In spite of these limitations, cost is expected to be a significant metric for GHG initiatives.
GHG metrics are an integral part of ongoing attempts to address global warming from anthropogenic sources. CO2 is the key GHG, but CH4, N2O, and SF6 are also considered significant enough to be of interest. CO2 represents 85% of total GHG emissions, but the others have high global warming potential relative to CO2, some with long atmospheric life. The discussion in this study focuses on CO2 emissions, which are the key, but not only component of GHG emissions.
Recent legislation2 has emphasized the improvement of efficiency of both natural gas and electric residential and commercial use and there are active legislative proposals to control GHG emissions. Significant subsidies are now available and are anticipated to be available in the future to achieve the goals. Based on the legislated goals, there can be difference in the performance of these initiatives and it is very important that end use efficiency, full fuel cycle efficiency and carbon footprint of these programs be assessed separately so there are no unintended consequences of the policy decisions.
Appliance End use Efficiency The present consumer information on residential and commercial appliances implies that the performance of the electric end use appliances are better than the natural gas appliances because the conversion efficiency of the energy by the device itself. This misleading measurement does not take into account the overall efficiency of producing and transporting the energy to the marketplace, which in the case of electricity can lead to significant energy losses.
In response to this concern, the National Research Council recommended that “the U.S. Department of Energy should consider gradually changing its system of setting appliance energy-efficiency standards to a full-fuel-cycle measurement, which takes into account both the energy used to operate an appliance, as well as upstream energy costs -- energy consumed in producing and distributing fuels from coal, oil, and natural gas, and energy lost in generating and delivering electric power. This change would offer consumers more complete information on household energy consumption and its environmental impacts.3 ” Full Fuel Cycle Efficiency On a “full fuel cycle” basis, the direct use of natural gas by residential, commercial and industrial energy users is far more energy efficient than the traditional use of coal or natural gas to produce electricity, which then must be delivered for use in homes, businesses and industries.
Full Fuel cycle means, for example, that for every Btu of primary energy in the coal mine, only 26% - 38% of the energy value gets delivered to the end-use customer after extraction, processing, transportation of the product to a 2 H.R. 2454 American Clean Energy and Security Act of 2009 3 National Academy of Sciences. 2009. Review of Site (Point-Of-Use) and Full-Fuel-Cycle Measurement Approaches to Doe/Eere Building Appliance Energy-Efficiency Standards